21Shares Research Newsletter - Issue 69

Market Outlook

In previous weeks, we’ve talked a lot about Ethereum’s Decentralized Finance (DeFi) burgeoning ecosystem and the cryptoassets associated with it. For example, last week we showed the historical returns of the best-performing DeFi assets over the last year, such as Chainlink (LINK), Yearn.finance (YFI), and Aave (LEND). Another interesting point to note is that a number of these assets are increasingly becoming examples of cryptoassets which have clear and differentiated return profiles from that of Bitcoin (BTC) and Ether (ETH).

Historically, while cryptoassets have been exceedingly uncorrelated with traditional assets, they have been quite correlated with each other — for example, over the last month Bitcoin and Ether have maintained a 0.63 correlation. Compare this to YFI’s correlation of 0.06 with Bitcoin or LEND’s 0.096 correlation with Ether. The recent performance of DeFi assets, whose value often comes from fees generated (or cash flow) in a similar way to equity, is increasingly showing that the market is becoming increasingly differentiated. This fact provides even more options for investors looking for large growth-driven investment opportunities which are also uncorrelated with other cryptoassets.

Weekly Returns

The top crypto assets all were slightly down over the last week following a surge during the last week from Chainlink (LINK) — BTC (-1.85%), ETH (-3.44%), XRP (-4.55%), LINK (-6.06%), and BCH (-4.37%).

Media Coverage

CoinDesk recently featured on its website our latest report — the State Of Crypto, Issue 3. Have you had a chance to read it? It's the best way to understand our thesis for Bitcoin where we explain why the asset represents a trillion-dollar opportunity. Read the full report here.

Our CEO, Hany Rashwan, appeared in the podcast A Rock Uncovered hosted by Didier Borel, wherein he discussed the cryptoasset ecosystem in Switzerland and the wider blockchain industry. Give the episode a listen here.

News - Aave Has Been Granted an Electronic Money Institution License by the U.K. Financial Conduct Authority | The Block

What Happened?

UK-based DeFi upstart, Aave Limited, which provides a non-custodial lending and borrowing protocol for cryptoassets, has been granted an Electronic Money Institution (EMI) license issued and authorized by the Financial Conduct Authority (FCA) under the Electronic Money Regulations 2011. In light of this news, LEND, the cryptoasset of the protocol, has returned around 23% over the past week and has had a +1,000% return over the last three months.

Why Does It Matter?

Such a license permits Aave’s UK entity to offer financial services such as issuing electronic money or alternative currencies, as well as providing payment services. This is a major milestone for the legitimacy of the Decentralized Finance sector and a testament to the fact that while services may be to some extent decentralized, issuing companies must comply with the regulations of their local jurisdictions On the final note, this approval from the FCA also sheds light on the acceptance of innovative crypto-related services by the U.K. financial regulatory body, which will undeniably help facilitate the further use of such products by the mainstream going forward.

Learn more here.